Weighing up mortgage options


I’m in the process of buying a house with a small mortgage required from AIB. Any advice re whether I should fix or go for a variable mortgage?

Ms E C , email

It is, I suppose, positive that for the first time in several years, questions about mortgage options are beginning to appear. In recent times, advice about mortgage options was redundant because banks were simply not lending.

Of course, some of the advice that would be given on this subject has been thrown on its head somewhat by the banks’ desperate efforts to rebuild margins to something approaching the sustainable level – ie engage in traditional banking once again.

My view has traditionally been that, unless people are very close to the limits of what they can afford, they should opt for the variable rate route. As a rule, banks setting fixed rates tended to err on the side of caution, making sure they were not out of pocket.

In effect, the customer was paying a slight premium for the security that a fixed rate brings: you know exactly what you have to pay each month and you know that, regardless of other circumstances, your mortgage rate will not change for the period of the fix.

However, the situation with variable rates is very difficult to assess. Variable rates used to move rarely outside of changes in the cost of borrowing, generally reflected in European Central Bank rates. However, Irish banks have been working recently to improve their profit margins – only last week AIB announced a further increase in its rates.

Essentially, margins on variable lending had become unprofitable. This was especially so post-crash as banks had to find the resources to pay for the bank guarantee and for the cost of increased regulation. In addition, Irish institutions were having to pay more to borrow money in the market because of doubts about the long-term viability of our financial services sector.

The bottom line is that it has made it more unpredictable than ever to assess the likely future direction of variable rates. For instance, there is a growing view that the ECB might actually cut its benchmark rate in the near future. If I were a betting man I would suggest that most of the Irish banks will brave the furious clamour and hold their variable rates steady, giving themselves the benefit of another quarter percentage point of margin.

So where does all this leave you? Fixed rates remain the best choice if affordability is already tight . I’m not sure these are likely to go any lower than they now are. Variable rates are currently more volatile. However, the best guess is that the next ECB rate cut will not be passed on.

All in all, a competitive fixed rate for three or five years might be the way to go but you will have to gauge your own needs and attitude to volatility.

Caught short by ‘early’ deduction
of property tax

I recently filled in my LPT return and paid the tax due using my Laser card. The leaflet sent out
stated that the money would not be taken until mid-July. Imagine my dismay when I discovered that they had taken this money out of my account on April 23rd . I consider this to be a fraudulent act and would like to warn other people of the dangers of trusting the government over this whole fiasco. I have applied for a refund, but won’t hold my breath .

Mr D W , Meath

It’s true that the Revenue might have been slightly clearer in how it worded the section on payment options in the literature accompanying your local property tax assessment. However, that’s a long way from suggesting that they have defrauded you.

In fact, both a careful reading of the leaflet and common sense indicate that the Revenue would be taking your Laser card payment before July 1st. The basic payment options are:

cash payment – either one lump sum or equal instalments from July 1st

single cash payment

direct debt

credit or debit card

deduction at source from your salary, pension or certain social welfare payments

single debit authority (like an electronic cheque).

The leaflet states that if you chose a direct debt, deduction at source or monthly cash pay- ments, these will be deducted monthly from July 1st. If you choose the single debt authority, it will be taken from your account no earlier than July 21st.

However, if you choose a single cash payment or payment by debit card, that pay- ment is taken immediately – in the same way as when you use cash or Laser card in a store. Equally, if you pay by credit card, it goes through instantly and will appear in your next monthly statement, with an expectation that it is paid by the due date on that statement.

When you think of it, once you send the cash or make the debit card transaction, the money is gone: it’s hardly logical to think it will swirl around the system for the next couple of months and remain as a credit in your account.

This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara St , D 2, or to dcoyle@irishtimes.com.